Property values in Asia soar while price rises in Europe lag behind

Latest data from Knight Frank global house price index shows prices in Hong Kong rose by more than 20% last year. Photograph Corbis

The global housing sector is operating a two-speed market as prices of western properties stagnate while the value of homes in emerging economies continues to power ahead.

House prices across the world staged a modest recovery last year, rising by 2.8% after a 3.8% decline in 2009, according to the latest Knight Frank global house price index. The global housing market benefited as strong price growth in the Asia-Pacific and the Middle East offset stagnation in Europe and the US.

Hong Kong saw the biggest increases, with house prices jumping more than 20% last year, while Ireland record the biggest decline, of nearly 11%, according to Knight Frank.

The UK came about two-thirds of the way down the global ranking, with prices rising 0.7% last year, compared to 3% growth in Germany, a 4.1% decline in the US and a 4.1% rise in Canada.

Liam Bailey, head of residential research at Knight Frank, said: "There are two stories here. The headline figure confirms relatively benign conditions but this hides big regional and country level differences.

This annual data hides the fact that a growing number of countries are seeing negative quarterly price movements," Bailey adds.

The percentage of countries in Knight Frank's 49-country index recording quarterly price declines rose from 31% to 41% in the second half of 2010.

Bailey warned that parts of Asia, such as areas in Mumbai and along the eastern seaboard in China, were at risk of overheating after prices doubled in 18 months.

North America was flat – helped by price increases in Canada – while Europe saw a 1.4% increase after a 7.7% decline in 2009.

"This year the outlook for the US and Europe is pretty slow. Growth in the US is likely to stick around zero, while in Europe it could dip to zero or even be negative," Bailey said.

"It looks increasingly likely that Asian markets will escape a crash in prices, but in many of the previously 'hot markets' price falls later this year seem a realistic assumption," he added.